Incoterms 2010 and International Business - 101
International Business: Environments and Operations, 15e (Daniels et al.)
CHAPTER SIX: GOVERNMENTAL INFLUENCE ON TRADE
CHAPTER SIX: GOVERNMENTAL INFLUENCE ON TRADE
OPENING CASE: THE U.S.-VIETNAMESE CATFISH DISPUTE [See Map 6.1.]
This case is a great example of attempts to protect a national industry against international competition. Catfish are farmed in the southern U.S. and Vietnam. The Vietnamese production has some competitive advantages including a more conducive climate, lower governmental restrictions, and lower labor rates. So even with transportation costs, Vietnam exports catfish to the U.S. The U.S. catfish growers fought back using a variety of means. They tried to limit the use of the name catfish and petitioned for increased taxes on imported fish and even tried to bring into question the safety of overseas fish. The U.S. producers have not been successful in limited imports and have even been caught up by their own efforts. A key point is that trade between nations cannot be viewed just by one industry. Vietnam is the third largest export market for U.S. beef. So, if we successfully limit the imports of catfish, will Vietnam retaliate by limiting beef imports?
QUESTIONS
6-1 List the advantages and disadvantages for the United States to protect its catfish industry.
Advantages of trade restrictions in the catfish industry include (1) increased employment, (2) a possible increase in revenues to the government in the form of higher tariffs, and (3) a possible increase in the competitiveness of domestic producers. Disadvantages include (1) trade protectionism can in the long term weaken the industry – without competition, firms can fail to improve their products and services offered (2) possible retaliation and increase in trade restrictions on U.S. exports to Vietnam, and (3) consumers could potentially face less choices and higher prices.
6-2 As you read through the chapter, list the protective measures (instruments) the United States has not used to protect its catfish industry. Briefly explain why each would or would not be successful.
The U.S. government has not used quotas, increased tariffs, nor made any effort to subsidize U.S. catfish producers. Any of these options would not be successful, since if imposed the Vietnamese government would likely bring charges of unfair trade practices to the World Trade Organization (WTO).
TEACHING TIPS: Have students visit the Web site of the WTO (www.wto.org) and review the current disputes found on that site. Have students report back what they have found and discuss their opinions. Carefully review the PowerPoint slides for Chapter Six.
CLOSING CASE: U.S.-Cuban Trade: When Does a Cold War Strategy Become a Cold War Relic? [See Fig. 7.3.]
Able to weather a variety of political leaders, economic events, and historical eras, the U.S. embargo of Cuba is the longest and harshest embargo by one state against another in modern history. Following Castro’s overthrow of the Batista government in 1959 and threats to incite revolutions elsewhere in Latin America, the United States canceled its trade agreement to buy Cuban sugar. Then, following a series of increasingly hostile events, the United States severed diplomatic relations and initiated a full trade embargo in 1962. Trade between the United States and Cuba stopped. Spurred by the collapse of communism more than thirty years later, Congress passed the Cuban Democracy Act in 1992 and the Helms-Burton Act in 1996, both of which tightened the noose for firms that attempted to do business with a Castro government. It was not until 2000 that Congress passed an act which allowed for limited exports of U.S. agricultural, food, and medical products; Cuba quickly became the twenty-first largest agricultural market for U.S. exports. Over time, sympathy for the U.S. role in Cuba has dwindled. Although many countries had initially supported the embargo, by 2001 some 150 nations had normal trade relations with Cuba. Further, the U.S. public has become increasingly divided on the usefulness of the embargo. While many people feel that repealing the embargo would help many U.S. industries and firms, others maintain that Cuban market opportunities are extremely limited. Others feel that the Cuban embargo is an unfortunate cold war relic and question the politics of U.S. policy. Recent events have seen the U.S. rescinding earlier restrictions and opening up lines for improved communications.
Questions
6-3 Should the United States seek to tighten its economic grip on Cuba? If so, why?
From a practical standpoint, most would argue that without the cooperation of the rest of the world, there is little left that the United States can do. Further, given that China is now a member of the World Trade Organization (WTO) and nations like Vietnam are trading with the United States, the Cuban embargo gives the appearance of cold war relic that is no longer relevant in today’s world. However, given the consensus that Cuba consistently violates human rights, the continuance of U.S. trade sanctions against Cuba is consistent with U.S. policy. In addition, Cuba’s expropriation of American property without compensation is internationally recognized as unacceptable behavior; thus, retaliation can be seen as an appropriate response. Finally, there is the continuing argument that if the Cuban economy can be further weakened, the Castro brothers may at last be overthrown. (LO: 1, Learning Outcome: To explain the rationales for governmental policies that enhance and restrict trade, AACSB: Analytical Skills)
6-4 Should the United States normalize business relations with Cuba? If so, what conditions might/should the U.S. stipulate?
There are both political and economic reasons for normalizing relations with Cuba. Cuba has long-since ceased to be a military threat, and there is hope that closer political relations with the United States (and the rest of the free world) will lead to greater democracy in Cuba. Further, Cuban trade sanctions are far tougher than those levied by the United States against Iran, Iraq, Libya, and North Korea. Economically, it is argued that because of the posture of the U.S. government, U.S. firms are losing out on opportunities to sell their products in Cuba to competitors from other countries. However, it is not likely that Cuba would trade with the United States as aggressively as in the past, even if it were possible. While progress in the area of human rights may be slow, experience in other countries suggests that imposing some human rights conditions may be effective in the long run. In addition, the U.S. government may wish to facilitate the return to Cuba of U.S. companies whose properties were expropriated, even though any remaining assets are likely in a state of serious disrepair. (LO: 2, Learning Outcome: To show the effects of pressure groups on trade policies, AACSB: Dynamics of the Global Economy)
6-5 Assume you are Cuba’s leader. What kind of trade relationship with the United States would be in your best interest? What type would you be willing to accept?
Raul Castro would logically want a trade relationship that would permit him to save face politically while contributing to the economic development of the economy. Initial overtures from the U.S. government could help bolster his political position and thus would possibly be welcomed as a way to begin negotiations. Economic development assistance could come in the form of direct aid and, possibly, foreign direct investment, although there surely would be substantial controls on either form. (LO: 3, Learning Outcome: To describe the potential and actual effects of governmental intervention on the free flow of trade, AACSB: Dynamics of the Global Economy)
6-6 How do the structure and relationships of the U.S. political system influence the existence and specification of the trade embargo?
The structure and relationships of the American political system serve to reinforce the existence and specification of the Cuban trade embargo. Pro-embargo supporters relentlessly lobby the U.S. Congress and presidential administration to tighten the embargo in order to spur the collapse of Cuban communism. Although recently diminished, the pro-embargo viewpoint is supported by key people in key positions throughout the government. (LO: 3, Learning Outcome: To describe the potential and actual effects of governmental intervention on the free flow of trade, AACSB: Dynamics of the Global Economy)
6-7 Much of U.S. tourism, especially via cruise ships, goes to the Caribbean. Do you think the end of U.S. travel restrictions to Cuba will add or displace tourism to other Caribbean countries?
Lifting the ban would be boom to the cruise industry, since Cuba’s hotel infrastructure is lagging and cruising would be a better choice for U.S. tourists. However, once the restrictions are lifted, it would take between 6 and 12 months to initiate calls to any Cuban ports and between 18 and 24 months to construct permanent port/pier facilities required to handle most cruise ships. The impact should be minimal, as cruise ships usually visit the port for a day, and then would move on to other ports in the Caribbean. (LO: 3, Learning Outcome: To describe the potential and actual effects of governmental intervention on the free flow of trade, AACSB: Dynamics of the Global Economy)
6-8 List and explain the advantages that might accrue to the United States if the embargo with Cuba were lifted.
The embargo prevents people to people communication, creating an environment of isolation for Cubans, with regard to information. Increased interactions with Americans will allow Cubans to have more access with the outside world, which could then pressure the Cuban government to adjust its foreign policies.
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